Uae insurance industry aug 2, 2009

1,577 views

Published on

Published in: Economy & Finance, Business
1 Comment
0 Likes
Statistics
Notes
  • Be the first to like this

No Downloads
Views
Total views
1,577
On SlideShare
0
From Embeds
0
Number of Embeds
3
Actions
Shares
0
Downloads
17
Comments
1
Likes
0
Embeds 0
No embeds

No notes for slide

Uae insurance industry aug 2, 2009

  1. 1. The UAE Insurance Industry 2 August 2009
  2. 2.   TABLE OF CONTENTS Executive Summary ........................................................................................................................................... 4  I.  Scope of the report........................................................................................................................................ 4  II.  Investment rationale ...................................................................................................................................... 4  1. Middle East Insurance Industry..................................................................................................................... 6  1.1.  Overview........................................................................................................................................................ 6  1.2.  The GCC ....................................................................................................................................................... 7  1.2.1.  1.2.2.  1.2.3.  1.2.4.  Overview ..............................................................................................................................................................7  Conventional vs. Takaful......................................................................................................................................7  Non-life insurance dominates...............................................................................................................................7  ‘National’ insurers.................................................................................................................................................8  2. Financial performance.................................................................................................................................... 9  2.1.  Financial performance................................................................................................................................... 9  2.2.  Takaful and life insurance attractive growth areas ..................................................................................... 13  2.3.  Comparative Financial Performance........................................................................................................... 13  3. Valuations ...................................................................................................................................................... 15  4. Stock Liquidity .............................................................................................................................................. 15  5. Growth Illustration ........................................................................................................................................ 16  6. Corporate Governance ................................................................................................................................. 18  7. Key Growth Drivers ...................................................................................................................................... 19  7.1.  Favorable demographics............................................................................................................................. 19  7.2.  High and rising GDP per capita .................................................................................................................. 19  7.3.  Economic diversification.............................................................................................................................. 19  7.4.  Regulation driving growth............................................................................................................................ 20  8. Emerging Trends .......................................................................................................................................... 21  8.1.  Islamic Insurance making inroads............................................................................................................... 21  8.2.  Regulatory framework ................................................................................................................................. 21  8.3.  Leveraging distribution channels ................................................................................................................ 23  8.4.  Cross - border expansion............................................................................................................................ 23  8.5.  Advent of foreign players leading to increased competition ....................................................................... 23  8.6.  Focus on core activities............................................................................................................................... 24  8.7.  Expected consolidation ............................................................................................................................... 24  9. Key Risks ....................................................................................................................................................... 25  9.1.  Equity and property market volatility ........................................................................................................... 25  9.2.  Weakening underwriting performance ........................................................................................................ 25  9.3.  Project delays and cancellations................................................................................................................. 25  9.4.  Increased use of captive insurance ............................................................................................................ 25  9.5.  Shortage of skilled labor.............................................................................................................................. 26  Appendix: Company Profiles .......................................................................................................................... 27  P a g e  | 2     
  3. 3.   DISCLAIMER This material was produced by Alpen Capital (ME) Limited (‘Alpen’), a firm regulated by the Dubai Financial Services Authority. This document is not to be used or considered as an offer to sell or a solicitation of an offer to buy any securities. Alpen may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securities (‘securities’), perform services for or solicit business from such issuer, and/or have a position or effect transactions in the securities or options thereof. Alpen may, to the extent permitted by applicable UAE law or other applicable laws or regulations, effect transactions in the securities before this material is published to recipients. Information and opinions contained herein have been compiled or arrived by Alpen from sources believed to be reliable, but Alpen has not independently verified the contents of this document. Accordingly, no representation or warranty, express or implied, is made as to and no reliance should be placed on the fairness, accuracy, completeness or correctness of the information and opinions contained in this document. Alpen accepts no liability for any loss arising from the use of this document or its contents or otherwise arising in connection therewith. This document is not to be relied upon or used in substitution for the exercise of independent judgment. Alpen shall have no responsibility or liability whatsoever in respect of any inaccuracy in or omission from this or any other document prepared by Alpen for, or sent by Alpen to, any person, and any such person shall be responsible for conducting his own investigation and analysis of the information contained or referred to in this document and of evaluating the merits and risks involved in the securities forming the subject matter of this or other such document. Opinions and estimates constitute our judgment and are subject to change without prior notice. Past performance is not indicative of future results. This document does not constitute an offer or invitation to subscribe for or purchase any securities, and neither this document nor anything contained herein shall form the basis of any contract or commitment what so ever. It is being furnished to you solely for your information and may not be reproduced or redistributed to any other person. Neither this report nor any copy hereof may be distributed in any jurisdiction outside the UAE where its distribution may be restricted by law. Persons who receive this report should make themselves aware of and adhere to any such restrictions. By accepting this report you agree to be bound by the foregoing limitations. P a g e  | 3     
  4. 4.   Executive Summary I. Scope of the report T his report caters to investors who are looking to the continuation of a long term trend that has seen the invest in the UAE insurance sector (life and non-life). average ratio of ceded to retained premiums fall from about The primary focus of the report is on conventional 61.3% in 2007 to about 56.4% in the second quarter of 2009. (non-Islamic) insurers and factors that drive premium income This trend signals greater sophistication and underwriting and earnings growth, including opportunities, challenges and capacity of the UAE insurers, but also raises the question of key trends facing the industry. The report also covers the extent to which the insurers are equipped to handle the valuations, governance and liquidity of the major industry risks that are now retained, rather than passed on to players. reinsurance companies. II. Investment rationale • The UAE insurers are responding to lower growth by Notwithstanding the global recession, the UAE insurance ceding less business to reinsurance companies. In the industry’s long-term outlook remains positive. Although second quarter of 2009 the ratio of ceded to retained weakness in new car and home sales and construction premiums fell to an all time low of 56.4%. project delays and cancellation will result in weaker growth in 2009 than over the past decade, we believe the sector will resume double digit growth rates in 2010 to 2012. The key factors underpinning the strong growth potential are (Chapter 7): While average growth in gross premium income was about 15.1% in the first and 0.8% in the second quarters of 2009, growth in net premium revenue (net of reinsurance and provisions for unearned premiums) was in excess of 20.0% in both the first and the second quarter. We view growth in • Low insurance penetration. Regulation, greater affluence, gross premium income as a leading and growth in net growth in organized savings, greater availability of Takaful premium revenue as a lagging indicator of growth. insurance products and changing consumer habits are • Gross premium income growth is slowing rapidly, while net some of the key drivers for spending on insurance products. • Strong economic premium income continues to grow fast, signaling slower revenue growth ahead in 2009. growth. Efforts to diversify local economies and greater investment in development of local economies (as opposed to investment abroad) than in the past. The UAE insurers continue to perform very well in terms of underwriting performance (Chapter 2.1). The performance has been uneven however with about half the peer group reporting increasing and half decreasing underwriting profits over the past three years. Longer term, the average • Favorable demographics. underwriting margin is on a declining path, although this We expect the UAE life and medical insurance industry to remains very high by international standards. The decline is grow at a significantly faster pace than non-life insurance. a reflection of rapid growth over the past few years and Oman Insurance increasing competition. The earnings performance is also Company are well placed to capitalize on this opportunity affected by cross-subsidization of unprofitable lines, such as with 23.7% and 17.0% respectively of 2008 revenue 3rd party motor insurance. Insurance Company and Emirates accounted for by life premiums. • Very strong underwriting performance in the first half of • Life and medical is growing faster than general insurance. 2009, but the long term trend points to greater competition. The UAE insurers are responding to slower growth in 2009 by ceding less business to reinsurance companies. This is P a g e  | 4     
  5. 5. All insurance companies surveyed, other than Arab Orient however, with the introduction of a new regulatory body and Insurance aggressive the promise of a capital adequacy regime akin to Solvency II investment strategies, with an average of 65% of assets Company, have adopted very (Chapter 8.2). This should encourage more discipline in invested in equities and real estate, mostly locally (Chapter areas of investment strategy, underwriting, reinsurance and 2.1). This has resulted in very volatile investment returns, risk management. We believe the regulatory reform will also with significant losses incurred in 2006 and 2008. In the spur consolidation and cross boarder expansion, particularly context of weak transparency and governance practices, we into less penetrated markets in the MENA region, in the feel this approach is unappealing to potential investors, but relatively fragmented industry. at the same time presents a great opportunity to unlock Greater competition from foreign players entering the UAE shareholder value. market is encouraging local players to develop their • Greater sophistication in investment strategy required. distribution networks and strategies, enter into joint ventures with their bank counterparts (bancassurance), and place • Higher asset allocation towards cash and bonds and less on equities and real estate. Better diversification of more emphasis on product development and innovation (Chapter 8.3). investments and higher allocation to international assets. We have identified the following key risks to investors in the The UAE insurers are closely held and their stocks are UAE insurance industry (Chapter 9): inherently illiquid. The stocks are trading at relatively moderate valuations, similar to an international peer group (Chapter 3). The valuations are underpinned by strong growth and good underwriting performance, but hampered by aggressive investment strategies, lack of transparency and weak stock liquidity. We feel there is potential to unlock significant value shortcomings in by terms addressing of relatively investment simple strategy and transparency. • Very illiquid stocks. • Trading at an average P/E ratio of 13.7 times. • Potential to unlock shareholder value by adopting more sophisticated investment strategy and providing greater • Very high exposures to local equities and real estate and hence high earnings volatility. • Weakening underwriting performance on the back of rapid growth, lack of claims history in some lines of insurance, shortage of qualified staff (e.g. actuaries) and crosssubsidy of unprofitable lines. • Increasing competition and pressure on premiums. • Construction project delays and cancellations particularly in Dubai. • Increasing use of captive insurance. • Weakness in governance and transparency. transparency. Conventional insurance continues to dominate the UAE market, but more and more players are also establishing Islamic compliant units (Chapter 8.1). We view exposure to Islamic insurance as a positive, given a somewhat higher growth rate than for conventional insurance, and favor players present in both segments, such as Arab Orient Insurance Company and Al Buhaira Insurance Company. The UAE regulatory regime for the insurance industry is minimal. Significant changes are expected going forward P a g e  | 5       
  6. 6.   1. Middle East Insurance Industry Chart 3: Non-life insurance market growth (%) 10.7% 1.1. Overview 5.5% The Middle East insurance industry is relatively small and 3.1% 3.6% 3.0% underdeveloped, accounting for less than 0.7% of the global insurance market of US$4.27 trillion in 2008 (See chart 1). -0.4% Middle East and Central Asia Chart 1: Global insurance market, 2008 3.4% 3.0% 0.6% Africa -0.8% -1.2% Japan* Western Europe -2.8% North America World 100% = US$4.27 trillion Growth rate, 2008/2007, (%) US 34.0% Oceania 1.8% Africa 1.3% Middle East and Central South and Asia East Asia 0.7% 5.4% Annual average growth rate 1998-2007 (%) Source: Swiss Re, *Incl. newly industrialized Asian countries Life insurance premiums in the Middle East & Central Asia grew 6.0% in 1998 to 2007 and 9.3% in 2008, significantly Europe 41.1% higher than 4.1% and -3.5% globally (See chart 4). Japan* 15.8% Chart 4: Life insurance market growth (%) 9.3% Source: Swiss Re, *Incl. newly industrialized Asian countries 6.0% 5.5% 6.4% 6.9% 5.2% 4.1% 3.6% The average insurance penetration (gross premium written -0.8% as a percentage of GDP) is very low at 1.5% compared to a -3.5% -3.4% global average of 7.1% (See chart 2), suggesting there is -11.6% significant room for growth. Middle East and Central Asia Africa Japan* North America Western Europe World Chart 2: Global insurance premiums and penetration Growth rate, 2008/2007, (%) 4,500 12% 3,500 3,000 8% 2,500 2,000 1,500 4% 1,000 Insurance Penetration (%) Premiums in 2008 (US$ billion) 4,000 Annual average growth rate 1998-2007 (%) Source: Swiss Re, *Incl. newly industrialized Asian countries Thus, the total insurance premiums in the Middle East & Central Asia grew 4.7% in 2008, compared to a decline of 2.0% globally (See chart 5). The prospect for the Middle East insurance industry is positive with potential for annual 500 0 0% Europe US Japan* South & Africa Oceania Middle World East East & Asia Central Asia Premiums in 2008 (US$ billion) premiums to grow by over three times before the insurance density reaches the global average. Insurance Penetration (%) Source: Swiss Re, *Incl newly industrialized Asian countries Chart 5: Insurance premium growth, 2008, (%) 4.7% Religious and cultural factors and lack of regulatory controls 3.8% have historically suppressed the growth of the insurance sector in the Middle East. However, in the last decade the market has grown rapidly, faster than any other region of the -6.2% According to Swiss Re, non-life insurance premiums in the Middle East & Central Asia grew 10.7% in 1998 to 2007 and 3.1% in 2008, far outpacing the growth rate of 3.4% and - -2.0% -2.4% world. Middle East and Central Asia Japan* US Europe World Source: Swiss Re, *Incl. newly industrialized Asian countries 0.8% globally (See chart 3). P a g e  | 6     
  7. 7.   1.2. The GCC Chart 7: Conventional versus Islamic insurance Conventional 1.2.1. Overview • Risk transfer from policyholder to insurance company Responsibility of policyholders / takaful participants • Policyholders pay • Participants make contributions to the a premium to the scheme insurer • All underwriting surplus • All underwriting distributed among the surplus transferred policyholders, who are to shareholder’s also liable for any account deficit Management status • Takaful operator acts • The insurer as administrator of the manages a scheme and pays the policyholders’ fund, takaful benefits from and, if required, the policyholders’ fund shareholders’ fund • In the event of a shortfall in the policyholders’ fund, the takaful operator is expected to provide an interest-free loan to cover the deficiency Access to capital • Access to share capital and debt with the possible use of subordinated debt Investment of funds The UAE hosts the GCC’s largest and the most developed • Interest based bonds and fixedincome investments are made by the insurer • There are no restrictions except for those imposed for prudential reasons insurance market. The UAE and Bahrain has the highest insurance penetrations, more than double the rate of Saudi Arabia and Kuwait (See chart 6). The growth rate is effectively a function of the insurance penetration, with Kuwait and Saudi Arabia growing faster than the UAE and Bahrain. In 2008, gross premium income for the UAE insurers grew by 26.3%, while the insurance penetration stood at 2.0%, highest amongst the GCC countries. Despite the rapid growth, the relatively low insurance penetration rates suggest there is still strong potential for growth. Gross Premium growth, 2008 / 2007 (%) Chart 6: Insurance penetration, 2008 premium income growth, 2008/2007 (%) 38.0% & Gross Kuwait (0.6%, 35.4%) 36.0% 34.0% 32.0% Saudi Arabia (0.6%, 34.1%) 30.0% Oman (1.1%, 31.7%,) The UAE (2.0%, 26.3%) 28.0% 26.0% Bahrain (2.0%, 24.9%) 24.0% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% Islamic Basis of Contract 1.6% 1.8% 2.0% 2.2% Insurance Penetration, 2008 (%) Source: Swiss Re, June 2009, Size of bubbles indicate gross premium income (US$ million) in 2008 • Cooperative risk sharing between the policyholder and insurance company • Access to share capital by takaful operator but not to debt, barring an interest-free loan to cover a deficiency in the policyholders’ fund • Only interest (Riba) free investments are permitted • Investments prohibited in Haram industries like those related to alcohol, tobacco, pork products etc Source: Alpen Capital Conventional insurance remain dominant, accounting for the 1.2.2. Conventional vs. Takaful The GCC insurers can be broadly categorized as either conventional or Islamic (Takaful), with some players present in both categories. Takaful premiums represent around 20% of the GCC insurance market, whereas the Saudi Arabian market is dominated by Takaful (See also chapter 8.1). majority of the GCC market, however the Takaful market is also growing fast. The Saudi insurance regulator, SAMA, has made it compulsory for new insurers to comply with Sharia law. As a result, the number of Takaful insurers in the region has risen rapidly. No such requirement is imposed in the UAE and conventional insurance remain dominant. While conventional insurance is viewed as a form of risk 1.2.3. Non-life insurance dominates management tool primarily used to hedge against the risk of The UAE insurance market is dominated by non-life contingent (uncertain) financial losses in exchange for a pre- business, driven by mandatory third-party motor insurance specified premium, Takaful is based on the principles of Ta- and health insurance for expatriates and the enormous awun (mutual assistance) and Tabaru (voluntary). Moreover, growth in the construction and real estate sectors over the being subject to the laws of Sharia, Takaful prohibits past decade. Non-life insurance accounted for 81.3% of the investments in Haram industries (gambling, liquor etc) and total gross premiums in 2008 (See chart 8). This is in advocates usage of instruments that are free of Riba (usury) contrast to a market share of around 59% for life insurance (See chart 7). P a g e  | 7     
  8. 8. and 41% for non-life insurance globally, underscoring the Life insurance premiums in the GCC (excluding Qatar) grew growth potential for life insurance in the region. 34.4% in 2008 compared to 28.8% for non-life insurance. The most populated economy of the GCC, Saudi Arabia, Chart 8: Life and Non-Life insurance in the GCC, 2008 100% = in US$ million 5,016.0 18.7% 81.3% 3,070.0 914.0 578.0 18.8% relatively low base. The UAE grew at a more moderate rate 451.0 23.1% 5.2% recorded the highest growth rate of 81.6%, albeit from a 28.6% of 30.0%. The UAE is far the largest market in absolute terms with life insurance gross premium income of US$937.0 million in 2008 (See chart 11). According to the Emirates 94.8% 81.2% 76.9% 71.4% Insurance Association, the UAE life insurance market is expected to grow at least 16% to 20% annually up to 2012. Saudi Arabia Kuwait Oman Bahrain Chart 11: Life insurance in the GCC Non-Life Life 2007 937 1,000 2008 2008/2007 (%) 90% 900 The UAE does not only boast a higher insurance penetration, but it is also the largest in absolute terms among the GCC countries (See chart 9). Chart 9: Non-Life insurance in the GCC, 2008 Life Insurance Premium (US$ million) Source: Swiss Re, June 2009 800 80% 82% 721 70% 700 60% 600 50% 500 400 35% 33% 30% 25% 300 211 200 158 156 87 100 30% 129 103 82 Bahrain Non-life Insurance Premium (US$ million) 32.2% 40% 35% 32.0% 35.2% 3,252 30% 24.8% 2,912 3,000 2,500 2008/2007 (%) 4,079 4,000 3,500 2008 25% 25.4% 2,203 20% 2,000 15% 1,500 1,000 520 500 703 10% 470 356 258 322 5% 0% 0 The UAE Saudi Arabia Kuwait Oman Bahrain 10% 0% The UAE Non-life Insurance Premium growth 2008 / 2007, (%) 2007 20% Oman 109 0 4,500 40% Life Insurance Premium growth 2008 / 2007, (%) The UAE Kuwait Saudi Arabia Source: Swiss Re, June 2009 1.2.4. ‘National’ insurers Some UAE insurance companies have been granted the status of ‘national’ insurer. National insurers have privileged access to risks with ‘national’ status - generally high-riskvalue projects of state-owned companies. The Emirate of Source: Swiss Re, June 2009 Abu Dhabi dominates this market, since it hosts most of the Property and miscellaneous accident insurance accounts for the majority of the non-life insurance business, while motor insurance accounts for about 30%, according to the Arab Insurance Market Review. (See chart 10). large scale energy related projects. The remainder of the insurance market is open to competition, whereby insurance companies with or without ‘national’ insurer status compete on equal terms. The Dubai insurance market is considered Chart 10: The UAE non-Life insurance, 2007 more open and competitive, with not ‘national’ insurer status. 100% = US$3,252.1 million Property & Misc. Accident 55.9% Marine & Aviation 13.8% Motor 30.3% Source: Arab Insurance Market Review, 2008 P a g e  | 8       
  9. 9.   2. Financial performance Chart 13: 3-year stock market return* (%) 10% 2.1. Financial performance 1 year 2 year 3 year 1% 0% -3% -10% Defining the peer group -11% -20% -30% In this chapter we are assessing the financial performance of ten of the largest publicly listed conventional insurers in the UAE by total revenue for 2008. This group is referred to as ‘the UAE insurers’ throughout the report. -16% -20% -22% -23% -25.1% -29% -40% -50% -60% -59% -67% -60% -65% -70% -66% -68% -72% -80% ADII Index Insurance penetration in the UAE increased from 1.5% in DFIINSU Index -37% -42% -38% -38% -41% ADBF Index DFIBANK Index ADRE Index DFREALTY Iindex ADEG Index Source: Bloomberg, *as at July 31, 2009 2005 to 2.0% in 2008 but remains well below the global average of 7.1% (See chart 12). The UAE insurance market is highly fragmented with 57 insurance companies present, Gross premiums written by the UAE insurers grew by an well above the norm for a country of its size. This suggests average CAGR of 30.5% in 2006 to 2008 (See chart 14). All there is a need for consolidation within the industry. players posted positive double digit growth rates. Oman Insurance Chart 12: Insurance penetration in the UAE 1,200 2.1 1.5 1.7 742.4 400 National Insurance Company and Arab Orient Insurance Company are the market leaders. However, the growth rate fell significantly in 2.0% the first half of 2009, to 15.1% in the first quarter and 0.8% in 1.5% the second (Only seven of the ten companies had reported first half results at the time of this report). Given the rapid 495.6 339.5 0.5% 74.7 89.8 164.7 208.1 2005 0 Dhabi 1.0% 2.0 905.9 600 200 Abu 2.5% 1,000 800 Company, 2006 2007 decline in the second quarter, we expect the growth rate to be weaker in the second half of the year. 2008 0.0% Non-Lif e Insurance density: premium per capita (US$) Chart 14: Gross premiums written, 2006 to 1H2009 Lif e Insurance density: premium per capita (US$) (In US$ mn) Insurance penetration: premium in % of GDP 800 Source: Swiss Re, June 2009 2006 2007 2008 1H2009 140% CAGR 700 120% 600 100% 500 80% 400 Index (ADEG Index), the DFM Financial Banks Index (DFIBANK Index) and the Dubai Financial Realty Index (DFREALTY Index) which recorded negative returns of 38%, Dubai Insurance Al Khazna Al Wathba Al Sagr Emirates Insurance 11.1% and 25.1% respectively compared to the ADX Energy 0% Al Ain Ahlia Insurance Index (DFIINSU Index) yielded negative returns of 20% Al Buhaira ADX Insurance Index (ADII Index) and the DFM Financial 40% 100 Arab Orient banking and realty industries. Over the past three years, the 200 Abu Dhabi National affected by the global financial turmoil than the energy, 60% 300 Oman Insurance The UAE insurance industry has been somewhat less Source: Company website, Zawya, CAGR for Al Ain Ahlia, Al Sagr and Dubai Insurance is for 2006 to 2008 as 1H2009 results are not yet available 60% and 66% respectively (See chart 13). The UAE insurance industry is highly dependent on the reinsurance sector, ceding over half of gross premiums to international and increasingly local reinsurance companies. Premium retention is gradually improving however with the P a g e  | 9     
  10. 10.   local insurers growing in size and sophistication. In 2008, 58.9% of net premiums were ceded to reinsurers, compared to 62.0% in 2006 (See chart 15). Chart 17: Net Underwriting Profit vs. Net Premium Growth, 2006 to 2008 (%) Chart 15: Premiums ceded to reinsurers, 2008 Net underwriting profit, CAGR, 2006 - 2008, (%) 67.2% 66.8% 72.3% 62.7% 53.1% 50.2% Net premium earned, CAGR, 2006 - 2008, (%) 160.0% Average = 58.9% 60.1% 120.0% 47.5% 47.9% 47.7% 80.0% 40.0% 0.0% Source: Company website, Zawya Al Buhaira Emirates Insurance Al Sagr Dubai Insurance Oman Insurance Al Wathba Arab Orient Abu Dhabi National Al Ain Ahlia Al Wathba AL Ain Ahlia Dubai Insurance Oman Insurance Arab Orient Al Khazna Insurance Al Buhaira National Insurance Emirates Insurance Al Sagr National Insurance Abu Dhabi National Insurance -40.0% Source: Company websites, Zawya 1 The trend of increasing premium retention by the UAE Over the last three years, the average combined ratio of the insurers continued in the first half of 2009. Notably, average peer group increased from 64.6% in 2006 to 75.4% in 2008, premiums ceded fell to about 57.7% in the first half of 2009 primarily due to higher claims ratios. This is a reflection of and 56.4% in the second quarter alone (See chart 16). the rapid growth rate experienced during this period, increased competition and cross-subsidization of less Chart 16: Premiums ceded to reinsurers 70% 68% 1H07 71% 65% 61% 57% 66% 64% 66% profitable lines, such as 3rd party motor insurance. That said, 1H08 69% 64% 60% 55% 55% 51% 50% 50% 50% 1H09 60% 60% 58% the average combined ratio remains very strong by international standards. Nine out of the ten companies have combined ratios below the critical 100% mark. Arab Orient Insurance Company is by far the most efficient overall with a combined ratio below 50%. Oman Insurance Company and Dubai Insurance Company also stand out with relatively Arab Orient Al Buhaira Abu Dhabi Emirates Oman Ins Al Khazna National Insurance Insurance Average Source: Company website, Zawya healthy loss ratios. The good underwriting performance continued in 2009, with an average combined ratio of 73.4% for the seven companies that had reported by the time this report was produced (See chart 18). Profitability While all players have reported strong top line growth, the same is not true for underwriting profits. About half of the players have improved their underwriting profits over the past three years, whereas half have recorded declines (See chart 17). In 2008, the average growth in underwriting profits for the peer group was 7.0%, compared to 18.8% in 2007.                                                              1 Combined ratio = Expense ratio (Net underwriting expense/Net premium earned) + Loss ratio (Net claims incurred/Net premium earned) P a g e  | 10     
  11. 11. Chart 19: Investment return (including fair value changes taken to equity), 2006 to 1H 2009 (%) Chart 18: Combined ratio, 2008 (%) Expense Ratio 120% 100% 80% 60% 40% 20% 0% -20% -40% Loss Ratio Combined Ratio 40% Avg. combined ratio = 75.4% 20% 0% -20% Al Khazna Al Buhaira Emirates Insurance Al Sagr Dubai insurance Oman Insurance Al Wathba Arab Orient Abu Dhabi National Al Ain Ahlia -40% -60% 2006 2007 2008 1H09 Al Ain Ahlia Abu Dhabi National Arab Orient Al Wathba Oman Insurance Dubai insurance Al Sagr Emirates Insurance Al Buhaira Al Khazna Source: Company website, Zawya Combined ratio – 2008 and first half 2009 106.9% 102.1% 93.2% 2008 1H09 The shape of the return graph, clearly illustrates how players 90.3% 73.4% 75.0% 69.8% 71.0% 65.9% 58.1% 45.7% with low investment risk (e.g. Arab Orient Insurance 77.9% 75.8% 73.4% 66.3% Company) have a smoother return profile than the sharp V- 48.6% shape for those with more aggressive investment profiles. The UAE insurers reported an average ROE of 17.4% in the Average combined ratio Oman Insurance Emirates Insurance Arab Orient Al Wathba Al Khazna Al Buhaira Abu Dhabi National Shareholder return first half of 2009, compared to -10.3% in 2008, 33.0% in 2007 and -13.5% in 2006. The performance has been very volatile due to the high exposure to local equity and real Source: Company website, Zawya estate markets. Arab Orient Insurance Company has outperformed its peers by reporting consistent ROE of over Contrary to insurers in developed markets, the UAE peer 20% in the last three years, thanks to its more conservative group has a very high exposure to regional equity and real investment strategy, demonstrating the strength of the local estate markets. This has resulted in high volatility in insurance industry absent of investment returns (See chart investment returns. Some players have tried to mitigate this 20). by reclassifying some investments from ‘trading’ to Chart 20: ROE, 2006 to 1H 2009 (%) 80% 60% 40% 20% 0% -20% return will have a large impact on earnings. Average Al Khazna exposure to regional equity markets and the investment 1H09 Al Buhaira investing in the UAE insurers, you get a very significant 2008 Emirates Insurance 5.5% (See chart 19). It is important to understand that by 2007 Al Sagr and -19.0% in 2008. The return in the first half of 2009 was Oman Insurance assets, the average investment return was -18.5% in 2006 Al Wathba When including fair value changes in ‘available-for-sale’ Arab Orient statement. 2006 Abu Dhabi National taken straight to equity rather than through the income Dubai insurance 100% Al Ain Ahlia ‘available-for-sale’, in order that changes in fair value can be Source: Zawya, Company filings P a g e  | 11       
  12. 12.   Capital Adequacy and Leverage Asset Quality Gross underwriting leverage (net premiums written to The UAE insurers in general pursue very aggressive shareholder funds) increased to 34.9% in 2008 from 23.6% investment strategies, with high exposures to risky assets in 2006, indicating that the regional insurance players have like regional equities and real estate. Concentration risk is been assuming gradually higher levels of risk in their also high. The asset-mix has changed somewhat over the business (See chart 21). It is of course also important to past two years with cash and cash equivalent now consider what type of risk is being underwritten (long or short accounting for a larger proportion of the overall asset base tail for example) and what type of controls are in place to while the proportion of high-risk investments has declined manage underwriting risk. (See chart 23). Falling equity markets and a decline in the value of property investments explains the decline in Chart 21: Net Premium Written / Equity (%) 2007 proportion of risky assets. Moreover, an increase in liquidity 2008 levels also reflects efforts by insurance companies to reduce 67% a 45% increase in cash levels in 2008, while Dubai Insurance Company reported an increase of 64%. Chart 23: High Risk Assets / Invested Assets (%) Al Khazna Al Sagr Al Buhaira Oman Insurance 8% 3% 13% 16% 12% 120% 2006 2007 Oman Insurance 27% 21% 10% 8% 18% Al Wathba asset risk. For example, Oman insurance Company reported 41% Avg. 2008 = 35.0% 28% Emirates Insurance 16% 15% Arab Orient Abu Dhabi National Al Ain Ahlia 28% 26% 22%21% 17% 16% 40% 40% 33% Dubai insurance 44% 46% 43% 52% 49% 38% Al Wathba 2006 2008 100% 80% Avg. 2008 = 65.2% 60% Source: Company website, Zawya 40% 20% Company, followed by Abu Dhabi National Insurance Al Khazna Al Buhaira Al Sagr Emirates Insurance chart 22). The best capitalized was Dubai Insurance Dubai insurance years with an average of 46.6% at the end of 2008 (See Arab Orient assets ratio. This ratio has also declined over the past three Abu Dhabi National 0% Al Ain Ahlia A more static measure of leverage is the equity to total Source: Company website, Zawya Company and Al Khazna National Insurance Company. Chart 22: Total Equity / Total Assets (%) 2006 2007 The UAE insurers rely to a great extent on reinsurance to mitigate concentration risk and to avoid underwriting risks 2008 100% beyond their capacity and capabilities. As a consequence, 80% UAE insurers are exposed to credit risk of reinsurance Avg. 2008 = 46.6% 60% counterparts. Reinsurance recoverable as a percentage of 40% equity of our UAE peer group rose from an average of 24.1% 20% in 2006 to 33.2% in 2008. For some insurers, including Al Al Khazna Al Buhaira Emirates Insurance Al Sagr Dubai insurance Oman Insurance Al Wathba Arab Orient Abu Dhabi National Al Ain Ahlia 0% Buhaira National Insurance Company and Arab Orient Insurance Company, the exposure is in excess of 50% of equity. Source: Company website, Zawya P a g e  | 12     
  13. 13. Reserve Adequacy their conventional counterparts, the Islamic insurance Average reserve levels of the UAE insurers declined over the past two years to 77.7% of net premiums earned in 2008 from 86.9% in 2006 (See chart 24). The reserve level is generally a function of the nature of the risks underwritten companies reported negative returns on capital in 2008 due to poor investment returns and negative fair value adjustments. 2.3. Comparative Financial Performance (short or long tail in particular) and the speed at which claims Chart 25 summarizes the performance of the UAE insurance are settled. companies compared to the average of the peer-group on Chart 24: Total Reserves to Net Premium Earned, 2008 (%) parameters such as asset quality, capital adequacy, profitability and reserve adequacy. 120% 100% 106% Average = 77.7% 80% 76% 82% 72% 67% 75% Al Khazna 60% 81% Al Buhaira 87% 80% 52% 40% 20% Emirates Insurance Al Sagr Dubai insurance Oman Insurance Al Wathba Arab Orient Abu Dhabi National Al Ain Ahlia 0% Source: Company website, Zawya 2.2. Takaful and life insurance attractive growth areas Historically the UAE insurers focused primarily on general insurance, although today most of them have also moved into life insurance. Notably, for Oman Insurance Company and Emirates Insurance Company, life insurance accounted for 23.7% and 17.0% respectively of gross premium revenue in 2008. We consider exposure to life insurance a strength, given the segments excellent growth potential (See chapter 4). Some of the major players, including Al Buhaira National Insurance Company and Arab Orient Insurance Company offer both conventional insurance and Takaful. We consider this a competitive strength, given the excellent growth potential of both segments. In 2008 UAE Islamic insurers 2 grew at a somewhat faster pace than conventional insurance. A challenge faced by the Takaful industry is the relative shortage of suitable investment opportunities. Like                                                              2 Abu Dhabi National Takaful Company, Dubai Islamic Insurance and Reinsurance Company, Islamic Arab Insurance Company (Salama) P a g e  | 13       
  14. 14.   Chart 25: Comparative financial performance of the UAE insurers in 2008 Average Better than peers Worse than peers Source: Alpen Capital P a g e  | 14     
  15. 15. practices, product innovation and effective and varied 3. Valuations distribution. Emirates Insurance Company is also displaying The valuation part of this report should be read in the context similar characteristics, but is trading at lower multiples. of limited free floats and extremely low stock liquidity of UAE insurers (See section 4). The P/E and P/B ratios are Chart 27: The UAE conventional insurers, P/BV (TTM) calculated based on share prices sourced from Bloomberg 5.0 4.0 and includes stocks that have not traded for weeks or in 4.0 some instances for months. 3.0 2.7 2.6 1.8 2.0 0.0 to an international peer group of 14.0x (See chart 26). Average Developed and Emerging Markets Average (The UAE) 1.2 Dubai Insurance Al Sagr Al Buhaira Al Wathba Emirates Insurance Abu Dhabi National Insurance Co.) is 13.7 times (x), similar Abu Dhabi National Insurance of the UAE peer group (excluding Al Wathba Insurance and 0.5 1.1 Al Ain Ahlia superior growth of the UAE insurance market. The P/E ratio 0.9 Al Khaznah 1.0 valuations compared to international peers considering the 1.7 0.9 0.9 Oman Insurance The UAE insurers are trading at relatively moderate Source: Bloomberg, Zawya Chart 26: The UAE conventional insurers, P/E (TTM) 25.0 22.0 20.4 20.9 4. Stock Liquidity 20.0 13.0 15.0 10.0 14.2 13.7 Although the UAE insurers appear to have significant free 6.4 9.1 5.0 4.4 floats, extremely low turnover velocity suggest the stocks are very closely held. All the ten stocks covered in this survey Average Developed and Emerging Markets Average (The UAE) Dubai Insurance Al Khaznah Al Sagr Al Buhaira Emirates Insurance Al Ain Ahlia Oman Insurance 0.0 are very thinly traded, as demonstrated by an average turnover velocity3 of 0.36% (See chart 28). This suggests only 0.36% of the shares change hands during a year. Chart 28: Turnover Velocity, (%) Source: Bloomberg, Zawya 1.52% 1.02% The valuations of the UAE insurers are underpinned by value shortcomings in by terms addressing of relatively investment simple strategy The UAE Average Al Sagr Emirates Insurance Al Khaznah significant 0.36% 0.24% 0.15% 0.18% Al Wathba valuations. There appears to be potential to unlock Al Ain Ahlia Oman Insurance transparency and weak stock liquidity weigh on the stock Abu Dhabi National Insurance we feel the aggressive investment strategy, lack of Dubai Insurance 0.02% 0.03% 0.06% 0.07% Al Buhaira strong growth and good underwriting performance. However, Source: Bloomberg, Traded volume measured from Aug 1, 2008 to July 31, 2009 and market capitalization as at July 31, 2009 and transparency. The UAE insurers are trading at an average price-to-book ratio (P/BV) of 1.7x. (See chart 27). Oman Insurance Company and Al Buhaira National Insurance Company are trading at higher multiples than their peers. This is a reflection of strong, but not excessive, growth rates, good underwriting performance and strong market positions. This is accomplished by good underwriting                                                              3 Turnover Velocity (%) = Annual traded volume/Market capitalization P a g e  | 15       
  16. 16. points in 2006 to 2008, reaching 1.6% in 2008 from 1.25% 5. Growth Illustration The growth potential of the GCC insurance industry is very good, particularly in view of relatively low insurance penetration rates. Below we illustrate the impact on growth in aggregate insurance premiums based on a central macroeconomic scenario. in 2005. In our model we assume the non-life insurance penetration reaches 2.3% by 2012 (See chart 29). Chart 29: Non-life insurance penetration, (%) 6% 2005 2006 2007 2008 5% 5.1. Assumptions 4% For the purpose of the illustration, we have considered the 3% life and non-life segments separately. The central scenario is 2% based on the following assumptions: 1% • We assume non-life premiums are driven by growth in 0% The UAE Kuwait Oman nominal GDP and by changes in non-life penetration (i.e. non-life premiums as a percentage of GDP). We have Saudi The US Europe Emerging World Arabia Markets Source: Swiss Re assumed the non-life penetration level to grow at a 0.1%point in 2009 and by 0.2%-points per annum in 2010 to 5.3. Life Density 2012. We have used IMF’s April 2009 forecast for nominal The life insurance density in the UAE increased at a CAGR GDP growth. of 40.7% in 2005 to 2008 compared to 7.3% globally. The link to GDP is by no means exact, and may fluctuate from year to year, since the UAE GDP is to a large degree driven by oil prices. In addition, historically oil revenues were to a large extent invested abroad. This has changed in the last few years, with more investments aimed a developing However, life insurance density in the UAE of US$208.1 in 2008 is approximately half of the global average of US$369.7 and only one-sixth of the European average of US$1,244.1. In our model we have assumed the life insurance density reaches US$467 by 2012 (See chart 30). the local economies. • We assume that life premiums are driven by population Chart 30: Life insurance density, (US$) 2,000 growth and by changes in life density (i.e. per capita premiums). We have assumed life density increases by 1,600 15% in 2009 and 25% per annum in 2010 to 2012. We 1,200 have used IMF’s April 2009 forecast for population growth. Some of the key reasons for an increase in the UAE insurance penetration rates towards global averages include the introduction of regulation for health and home insurance, 800 400 0 The UAE Kuwait growth in organized savings, greater availability of Takaful insurance products, greater affluence and changing Oman 2005 Saudi Arabia 2006 The US 2007 Europe Emerging World Markets 2008 Source: Swiss Re consumer habits. 5.2. Non-life insurance penetration There are good reasons why the UAE life density should not reach the levels of Europe or the US. The UAE has a high The non-life insurance penetration in the UAE was about 1.6% in 2008 - approximately half of the global average of 2.95%. The penetration rate increased by about 0.35%- income disparity, with life insurance more prevalent in high income groups. Tax incentives, both in terms of income and heritance tax, boosts the demand for certain long term P a g e  | 16       
  17. 17.   savings schemes and annuities in the developed world. Such tax incentives are not applicable to the UAE. The population is also characterized by a relatively young local population with a good social safety net, not inclined to buy pension and long term saving products, and an expatriate population that is more inclined to remit savings to their home countries. On the basis of the above assumptions, the UAE insurance market will grow at a CAGR of 15.3% in 2008 to 2012. With the life segment growing more than twice as fast as the nonlife segment (See chart 31). The growth in gross premium income reported so far by the UAE insurers for the first half of 2009 has been stronger than our forecast for the full year of 2009, however there is a distinct slowdown in growth from 14.9% in the first quarter of 2009 to only 0.8% in the second quarter. Chart 31: The UAE insurance market, 2008 to 2012 (US$ million) 10,000 8,683 8,000 2,506 6,000 5,016 3,973 4,000 2,000 937 721 1,701 307 1,394 2,476 380 3,252 6,369 4,079 2,096 0 2005 2006 2007 Total Life premiums, US$ million 2008 2012 Total Non-life premiums, US$ millon Source: Alpen Capital P a g e  | 17     
  18. 18. relations department to handle investor queries. Only Oman 6. Corporate Governance Corporate governance standards and transparency are critical aspects to potential investors. This is an area were UAE insurers have potential to improve (See chart 32). Insurance Company and Emirates Insurance Company have a contact list of their management departments displayed on the website. Limited information is available on the composition of investment portfolios. Some of the key shortcomings in our sample of UAE insurers include the following: limited financial information is available on the respective websites and investors have to look to the respective stock exchanges for audited financial statements. Normally only three years of historical financial information is available. None of the insurers have a dedicated investor However, as per stock exchange regulations, all player report quarterly results, most of which contain appropriate disclosure of related notes to financial statements. The majority of the insurers are rated by an international rating agency, most commonly Standard & Poor’s or AM Best. Chart 32: Corporate governance and transparency Corporate Communication & Disclosure Latest Availability History of annual of Investor publicly report relations available availabile on contact accounts website details Company Name Level of interim results disclosure Frequency of Rated by rating reporting on agency the website Abu Dhabi National Insurance Al Ain Ahlia Insurance Company Al Buhaira National Insurance Al Khazna Insurance Company Al Sagr National Insurance Company Al Wathba National Insurance Arab Orient Insurance Company Dubai Insurance Company Emirates Insurance Company Oman Insurance Company The UAE Average Unfavorable Least Attractive More Attractive Attractive Most Attractive Source: Bloomberg, Zawya, Alpen Capital P a g e  | 18       
  19. 19.   7. Key Growth Drivers Chart 34: Life Expectancy at birth, (years) 7.1. Favorable demographics 78.1 77.4 76.7 The UAE population is expected to grow at a CAGR of 3.0% in 2009 to 2012 to reach 5.4 million, according to IMF. It 76.6 75.8 74.7 grew at a CAGR of 5.1% in 2003 to 2008. An increasing role 68.9 67.6 in this is being played by expatriates. Expatriates are 66.4 expected to constitute 82% of the UAE population in 2009 according to MEED (See chart 33). 2000-2005 The UAE Chart 33: UAE population: Residents and Expatriates 100% = in '000 4,229 4,488 4,765 5,066 80% 81% 81% 82% 2005-2010 2010-2015 The GCC World Source: World Population Prospects: The 2008 Revision by the United Nations 7.2. High and rising GDP per capita With a GDP per capita of US$54,607 in 2008, second only to Qatar, the UAE is one of the richest economies of the GCC. 20% 19% 19% 18% 2006 2007 2008E* 2009E* Notably, buoyed by oil revenues, GDP per capita in the UAE more than doubled in the past five years. According to the Residents Expats Source: MEED, *E=Estimated IMF, UAE GDP per capita is expected to increase at a CAGR of 6.2% in 2010 to 2013 after growing at 16.9% in 2003 to 2008, and a sharp correction of -19.7% in 2009 (See chart 35). Greater affluence will drive demand for all types of insurance products. The UAE demography is characterized by a relatively young 29.7 years, 99.1% of the UAE population is aged below 65 years, compared to an average of 93.3% for India and China and 85.5% for the US and the UK (CIA Factbook, April 2009 estimates). Also, the UAE labor force is expected to grow at a fast pace, as the age bracket of 15 to 64 years is expected to account for 79.9% of the overall population in 2010 and 80.1% in 2015, higher than the world average of 65.5% and 65.8% respectively. A young working population in the UAE augurs well for the non-life insurance industry. 60,000 50,000 40,000 30,000 20,000 10,000 0 -10,000 -20,000 6.3% 5.6% 6.5% 6.4% 10.0% 5.0% 0.0% -5.0% -10.0% y-o-y growth (%) higher than the average median age of India and China of Chart 35: GDP per capita in the UAE, (US$) GDP per capita (US$) population. In spite of the UAE’s median age of 30.1 years, -15.0% -19.7% 2009 2010 -20.0% 2011 GDP per capita (US$) 2012 2013 GDP per capita y-o-y growth (%) Source: IMF World Economic Outlook, April, 2009 7.3. Economic diversification Moreover, life expectancy at birth in the UAE is rising The demand for non-life insurance has increased at a rapid steadily. According to the United Nations, life expectancy at pace, as the GCC economies continue to diversify away birth is expected to reach 78.1 years by 2010-2015 (See from oil dependence. With more and more projects coming chart 34). This is considered positive for both non-life and life to fruition, this should spur demand for property and casualty insurance industries. insurance products. Notably, the property and casualty insurance business in the GCC grew at a CAGR of 26.8% in 2003 to 2007, lead by the UAE that grew by 34.7%. P a g e  | 19     
  20. 20. The growth in the region seems unabated. Despite many Compulsory heath insurance has been gradually project cancellations in the last six months, there are implemented across the GCC. Compulsory health insurance approximately US$2.1 trillion of projects either planned or for expatriates has been in force since 2006 in Saudi Arabia. currently underway in the GCC over the next five to seven Mandatory heath insurance for expatriates and their years (See chart 36). This reflects a year-on-year growth of dependents was introduced in Abu Dhabi in two steps in July 8.9% at June 2009. Notably, the UAE commands a lion 2006 and January 2007. Dubai was expected to follow suit in share of the total GCC projects (approximately 44%). January 2009, but this has now been delayed until 2010. The Dubai health insurance regime is expected to cover all Chart 36: The GCC Projects, (US$ billion) residents, local as well as expatriates. 894 938 The Strata Law in Dubai (not yet released) requires property owners to have home insurance cover. However, in practice, 575 only mortgage property owners have home insurance cover 475 265 270 39 90 95 60 as it is legally binding. Notably, as per Hadef & Partners, a 206 206 legal firm based in Dubai, most of self-financed properties are uninsured. However, with the regulations under the Bahrain Kuwait Oman Qatar 22 June 2008 (US$ billion) Saudi The UAE Arabia 22 june 2009 (US$ billion) Strata Law to be released soon, all owners' associations will have to take building and public liability insurance. The Strata law is also expected to apply to property owners who Source: MEED, Gulf projects (June 22, 2009) have rented out their properties. The effective implementation of the Strata Law is likely to boost not only to 7.4. Regulation driving growth A key driver of insurance penetration in emerging markets is the introduction of compulsory insurance cover, including home insurance but also home contents, fire and public liability insurance. third party motor, health and home insurance. Motor insurance is a low margin business in the UAE and many other GCC countries due to caps being imposed on the price of third party motor cover. Nevertheless, motor premiums in the GCC grew at a CAGR of 21.2% in 2003 to 2007. The growth was led by the UAE and Saudi Arabia, where premium income grew at 28.0% and 20.4%, respectively (See chart 38). Chart 37: Motor insurance premiums in the UAE and Saudi Arabia, (US$ million) 986.6 754.5 651.6 597.9 512.7 444.3 368.1 309.7 2003 448.7 367.3 2004 2005 The UAE 2006 2007 Saudi Arabia Source: Arab Insurance Market Review, 2008 P a g e  | 20       
  21. 21. 8. Emerging Trends Chart 39: The GCC Islamic insurance market outlook, (US$ million) 8.1. Islamic Insurance making inroads CAGR 19.7% Though not very prominent in the UAE, the religiously 3,792 CAGR 5.5% 2,673 acceptable takaful insurance (Islamic non-life insurance) and family takaful (Islamic life insurance) is picking up pace in 5,019 CAGR 13.1% 2,046 the region. Takaful in the UAE grew at a CAGR of 52.1% in 2004 to 2007, albeit from a low base, compared to 38.9% for the GCC as a whole. Consequently, takaful penetration 2007E Conservative Balanced (insurance premiums / GDP) in the UAE increased from 0.10% in 2005 to 0.15% in 2007, whereas takaful Optimistic 2012 Projections Source: World Takaful Report, 2009, E=Estimated penetration in the GCC reached 0.28% in 2007 from 0.21% in 2005 (See chart 38). With gross takaful contributions of US$1,695 million in 2007, Saudi Arabia is the world’s largest 8.2. Regulatory framework Islamic insurance market. The UAE insurance regulation is currently minimal, although some initiatives are underway to improve the regulatory Taka ful Penetration rate in 2007, ( %) Chart 38: Islamic Insurance, penetration and growth 1.0% 0.9% 2007 establishing a new regulatory body, the Insurance Saudi Arabia (38.0%, 0.85%) 0.8% Commission, for the industry. In addition, Solvency II, the 0.7% updated set of regulatory requirements for insurance firms 0.6% 0.5% 0.4% operating in the EU, is expected to be implemented by 2012. Bahrain (57.9%, 0.32%) The GCC (38.9%, 0.28%) The Solvency II rules limit the amount of risk that insurance 0.3% 0.2% Kuwait (31.9, 0.03%) 0.1% 0.0% 0.0% framework. A new insurance law came into force in August 10.0% 20.0% Qatar (44.9%, 0.07%) 30.0% 40.0% companies can underwrite in relation to their capital bases The UAE (52.1%, 0.15%) 50.0% 60.0% (See chart 40). 70.0% Gross Takaful Contributions, 2004-2007 CAGR ,(%) Source: World Takaful Report, 2009, Size of bubbles indicates gross takaful contributions (US$ million) in 2007 Given its low penetration level in the GCC, we expect Islamic insurance to witness substantial growth over the medium to long term. The World Takaful Report 2009 projects the GCC takaful market to grow at a CAGR of about 13.1% in 2009 to 2012 reaching US$3.8 billion (See chart Chart 40: Pillars of Solvency II regulations Pillar 1 • Quantitative requirements (Amount of capital an insurer must hold) Pillar 2 • Governance and risk management of insurers (Own Risk and Solvency Assessment) • Effective supervision of insurers (Supervisory Review Process) Pillar 3 • Reporting, disclosure and transparency requirements Source: Central Bank of Bahrain, May 2009 39). In fact, the Emirates Insurance Association (EIA) has advised its members to align their capital risk balance in line with the new solvency rules. The new rules will also force insurers to make significant changes to their financial reporting systems including fair-valuation of their balance sheets and greater public disclosure of financial statements, risk measures and capital calculations. The new capital requirements should induce greater discipline in areas of P a g e  | 21       
  22. 22. investment strategy, underwriting, reinsurance and risk Many of the UAE insurance companies are rated by management and may result in consolidation amongst the Standard & Poor’s and/or AM Best. The rating agencies many UAE insurance companies currently owned and provide a substitute to regulation by subjecting the operated by families and business groups. companies to capital adequacy tests and comprehensive reviews of business and financial profiles, strategy and Foreign ownership of local UAE-based insurers is currently governance. The rating agencies also help to address some capped at 25%. of the shortcomings in terms of transparency by publishing regular updates on their rating assessments. Chart 41: Regulations in GCC Insurance Bahrain Kuwait Oman Qatar Saudi Arabia The UAE Regulator Bahrain Central Bank Ministry of Commerce and Industry Oman Capital Markets Authority Qatar Financial Center Authority (QFCRA) Saudi Arabian Monetary Agency Insurance Companies Division at UAE Ministry of Economy. Dubai Financial Services Authority for entities registered at the DIFC Association Bahrain Insurance Association Kuwait Insurance Companies Union Oman Insurance Association (under formation) N.A. N.A. Emirates Insurance Association Regulatory Law or Reference Work Insurance Rulebook, April 2005 Insurance Law, 1961 Insurance Companies Law, March 1979 Emiri Decree No. 1/1966, QFCRA regulations Cooperative Insurance Companies Control Law, 2003 Federal Law No. 9 of 1984 concerning insurance companies Federal Law No. 6 of 2007 regarding the incorporation of the insurance authority and work regulation Capital requirements Tier 1 capital: BHD 5 million (US$10 million) Tier 2 Capital: Max. 100% of tier 1 capital, Overseas and Captives not subject to minimum capital Local insurers: KD50,000 (US$525,000) Foreign Insurers: KD225,000 (US$35 million) OMR5 million (US$13 million) US$10 million Insurance services (only): SR100 million (US$27 million), Insurance and Reinsurance services: SR200 million (US$54 million) AED50 million (US$14 million) Source: The GCC Insurance regulators P a g e  | 22       
  23. 23. • 8.3. Leveraging distribution channels to expand outside its traditional Abu Dhabi base in a bid Being a relatively young insurance market, distribution in the to capture more of the growing insurance market in the UAE is achieved through traditional channels of local offices country. and tie-ups such as agencies, brokers and banks. According to EIA, there are approximately 230 brokers in the UAE but October 2008: Emirates Insurance Company is planning • May 2008: Abu Dhabi based Al Khazna Insurance only 20% have adequate professional and education Company acquired a 15% stake in Saudi Arabia’s Sanad qualifications. Moreover, approximately 70% of the brokers for Co-operative Insurance and Reinsurance to offer new are marginal and rely only on motor insurance business. insurance covers in the Saudi market. Although conventional distribution channels, such as brokers and agents, enable insurers to control • expenses, May 2008: Arab Orient Insurance Company, Abu Dhabi Islamic Bank (Egypt) and Amlak Finance signed a MoU diversification into bancassurance, online and telemarketing to launch a joint venture insurance firm in Egypt. The offers attractive growth potential. The most promising is management of the joint entity, the Arab Orient Takaful bancassurance, which offers a win-win situation for both Insurance Company, is overseen by Arab Orient parties wherein a bank receives fee-based income and an Insurance Company. insurance company gets access to a larger pool of customers. According to the Middle East Bancassurance • December 2007: Tokio Marine Group, a leading takaful Conference, May 2007, bancassurance sales in the Middle insurance services provider in the UAE and Saudi Arabia, East could reach US$100 million by 2010. is planning to expand across the MENA region through its new company Tokio Marine Middle East Limited. Recent distribution channel related initiatives include: • • AXA Insurance Gulf launched an online service in June March 2007: AXA Insurance Gulf acquired 10% in United Insurance Company, Bahrain. 2009 enabling purchase and renewal of motor policies online. • 8.5. Advent of foreign players leading to increased competition National General Insurance (NGI) has partnered with An attractive market coupled with low minimum capital Aviva Life Insurance and Emirates National Bank of requirements has attracted an increased number of foreign Dubai to increase life assurance sales. NGI has also players to the UAE thereby increasing competition. The UAE started offering insurance products online. Ministry of Economy granted licenses to four new insurance firms in February 2009 (See chart 42). 8.4. Cross - border expansion To capture growth opportunities outside the home markets, several insurance players in the GCC have either Chart 42: The nationality • insurance companies by 100% = 57 established or acquired operations abroad, especially in the MENA region. Some of the most recent announcements: UAE Foreign* 46% July 2009: T’azur, the Bahrain based Islamic insurer, is planning to expand its operations in the UAE, Saudi Arabia and Qatar as it expects Islamic insurance products to form 50% of the Gulf insurance industry in The UAE 54% the near term. Source: EIA, *Includes other GCC countries • May 2009: Gulf Insurance Company of Kuwait, acquired 36% of Jordan based Arab Orient Insurance for US$19.6 million. P a g e  | 23       
  24. 24.   According to Oman Insurance Company, foreign insurance 8.7. Expected consolidation companies constitute around 30% of the total volumes of There are 57 insurance companies operating in the UAE, a insurance premiums in the UAE. significantly higher representation than in both mature and Gradually weaker average underwriting margin over the past three years suggests that the market is turning more developing nations. Foreign ownership restrictions have historically hampered effective consolidation in the industry. competitive. The foreign players that have entered the We expect the implementation of Solvency II by 2012 to market over the past couple of years have brought with them increase consolidation efforts in order to strengthen balance product and sheets and to diversify investment, reinsurance and marketing capabilities etc. With greater competition naturally insurance risk exposures. A greater part of risks currently comes downward pressure on the premiums. reinsured could be retained in the future. innovation, greater efficiency, technical 8.6. Focus on core activities After having suffered significant erosion in share capital in 2006 and again in 2008 due to equity market volatility, we expect that local insurers will begin to run their businesses more like insurance companies and less like investment holding companies. For someone that wants exposure to the UAE insurance industry there is not much choice, with all players heavily invested in local equity and property markets. The player with the most conservative investment strategy, Arab Orient Insurance, is also the one with the best return on capital. The share of liquid assets of the UAE conventional insurers has increased as they adopt more risk-averse profiles. The share of cash and cash equivalents as a percentage of total investments increased from 24.8% in 2006 to 34.8% in 2008, while the share of investment securities and properties decreased from 75.2% in 2006 to 65.2% in 2008. The shift has to a large extent been involuntary as equity and property prices have declined (See chart 43). Chart 43: Investment profile of the UAE insurers   100% = (in US$ millions) 2,679.4 3,529.3 3,073.2 17.9% 17.3% 23.5% 24.8% 31.9% 57.2% 2006 50.7% 2007 34.8% 41.7% 2008 Investment Securities Liquid Investments Investment properties Source: Company website, Zawya, Data represent an average of the ten largest players P a g e  | 24     
  25. 25. 9. Key Risks   Chart 44: Projects cancelled or on hold, (US$ billion) 9.1. Equity and property market volatility 389.8 The UAE insurers are pursuing very aggressive investment strategies, with high exposure to local stock and real estate markets. This may be acceptable in the context of strong capitalizations, but makes for very volatile and unpredictable earnings and return on capital. The performance of the UAE 6.0 Bahrain Qatar insurers has been more driven by investment returns than by underwriting performance over the past three years. In 37.2 11.1 9.9 53.2 Oman Kuwait Saudi Arabia The UAE Source: MEED, Gulf projects (June 22, 2009) addition, there is very little disclosure into the investment strategies and investment composition. We see an opportunity here for the insurance sector to adopt more traditional and conservative investment strategies, thereby offering potential investors an opportunity to invest in the local insurance market without exposure to the local equity and real estate markets. This will reduce earnings volatility, raise the risk adjusted return and ultimately stock prices. 9.4. Increased use of captive insurance Captive insurance, or “self insurance”, is most prevalent in Bahrain, Dubai and Qatar as these countries have regulations for establishing captives (See chart 45). Large corporations commit part of their own capital to cover their risks. Captive insurance is particularly useful when insurance for certain risks are either unavailable or only available at unacceptable terms. The move to captive is encouraged by the lower expense ratios for captive compared to commercial 9.2. Weakening underwriting performance insurers. According to Marsh’s Global Captive Benchmark Report 2008, 65% of captives have an expense ratio of less The underwriting performance of the UAE insurers has weakened gradually over the past three years. This is a than 5% compared to an average of 25% for commercial insurers. function of growing competition, rapid growth and to some extent relaxation of underwriting standards. That said, Chart 45: Captive Insurance Regulations underwriting performance still remains good compared to developed markets, with an average combined ratio of 77% Issue for our sample in 2008. Dubai Internatio nal Financial Centre Central Bank of Bahrain Qatar Financial Center The global downturn has led to an increased number of Minimum capital required Class I CaptiveUS$150,000 Class 2 CaptiveUS$250,000 Class 3 CaptiveUS$1 million Captive (SPV) - US$200,000 Class I CaptiveUS$150,000 Class 2 Captive- US$1 million Class 3 CaptiveUS$250,000 Solvency margin requirements Minimum base capital or the risk based capital, whichever is higher Category C1 firm US$200,000 Category C2 firm US$800,000 Minimum base capital or the risk based capital, whichever is higher Application fees US$15,000 US$265 US$10,000 Tax regime 9.3. Project delays and cancellations 50 year taxholiday No corporate taxes (except for oil companies) Tax-exempt projects being put on hold or cancelled, thereby reducing the potential insurable property in the GCC. According to MEED, projects in the GCC worth about US$0.5 trillion are either on hold or have been cancelled. Around 77% of the projects in question are located in the UAE (See chart 44). An increasing number of projects being put on hold or cancelled could hamper the growth of the non-life insurance business in the UAE. Source: Middle East Insurance Review, 2008 P a g e  | 25     
  26. 26.   According to AON Consulting, there are seven captives in the Middle East, with many more in the making. The most notable among these is Saudi Armaco (Stellar Insurance), the UAE-based Tabreed (Tabreed Cooperative Insurance) and Qatar Petroleum (Al Koot Insurance and Reinsurance). As large firms set up their own captives, a sizeable portion of the country’s premium income goes beyond the reach of the commercial insurers. 9.5. Shortage of skilled labor With an increasing number of insurance firms being established in the GCC, the industry is witnessing a shortage of professionals, such as underwriters. Underwriting skills are a key requirement in growing insurance operations. The     Arab Forum of Insurance Regulatory Commission (AFIRC)Hawakamah survey also notes that the recruitment of qualified board members and management remains a challenge in MENA insurance markets. P a g e  | 26     
  27. 27.                         Appendix: Company Profiles                   P a g e  | 27     
  28. 28.   Abu Dhabi National Insurance Company (ADNIC DH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 315.2 369.4 17.2 Net premium earned 90.0 115.1 27.8 Underwriting profit 29.1 28.7 (1.3) Underwriting profit margin (%) 32.3 25.0 - Net profit 90.0 57.2 (36.3) ROE (%) 16.4 10.5 - ROA (%) 10.2 6.3 - AED ADNIC DH ADNIC.ADSM 5.5 9.75/5.5 2,062.5 561.5 1,181.4 321.6 Bloomberg Ticker: Exchange Ticker: Price (July 23, 2009) 52 Week High/Low Mkt. Cap (AED million) (US$ million) Enterprise value (AED million) (US$ million) 120% S&P Financial Strength Credit Rating: A-/Stable 110% 100% 90% *Zawya 80%   COMPANY DESCRIPTION 70% 60% Established in 1972, Abu Dhabi National Insurance Company (ADNIC) is the largest of the Abu Dhabi based ‘national’ insurers. It offers all classes of life and non-life insurance and reinsurance products and services. It categorizes its insurance products into personal insurance, business insurance and overseas insurance. The personal insurance segment covers home, car, life & health and accident insurance, while business insurance covers fire & property, aviation, marine hull, engineering, energy and cargo insurance. ADNIC offers aviation, energy, cargo, marine, property and engineering insurance to its overseas clients through its overseas insurance segment. Aug-08 Oct-08 Jan-09 ADNIC UH Equity • • Net premium for the first half of 2009 increased 29.7% year on year to US$93.0 million. However, ADNIC reported a net loss of US$41.0 million in the first half of 2009 compared to net income of US$74.3 million in same period in 2009 Jul-09 ADII Index   SHAREHOLDER STRUCTURE Abu Dhabi Investment Council 23.80% Recent Events: • Apr-09 Ahmad Bin Khalaf Al Outaibah 10.11% Sheikh Tahnoun Bin Mohammed Abu Dhabi Al Nahyan 5.30% Cooperative Public 55.74% In February 2009, ADNIC launched ‘Shifa’, a medical insurance product, in partnership with Vanbreda International, a global health insurance consultant and administrator. Shifa offers customers an extensive network of more than 10,000 medical service providers worldwide Society 5.05% KEY INSURANCE RATIOS (%) In January 2009, ADNIC launched a new brand campaign introducing a “revitalized look and feel” for its corporate identity 2006 2007 2008 Claims ratio 65.1 68.6 75.5 Combined ratio 60.1 67.7 75.0 8.9 8.2 4.8 Investment return* *Excluding change in fair value    
  29. 29.   Al Ain Ahlia Insurance Company (ALAIN UH Equity) STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 172.9 189.6 9.7 Net premium earned 61.4 74.2 20.8 Underwriting profit 12.0 5.0 (58.2) Underwriting profit margin (%) 19.5 6.7 - Net profit 56.7 39.2 (30.9) ROE (%) 20.5 13.3 - ROA (%) 12.4 7.0 - AED ALAIN UH ALAIN.ADSM 64.0 97.5/64.0 960.0 261.4 541.3 147.4 Bloomberg Ticker: Exchange Ticker: Price (June 23, 2009) 52 Week High/Low Mkt. Cap (AED million) (US$ million) Enterprise value (AED million) (US$ million)   120% S&P Financial Strength Credit Rating: BBBpi 110% 100% 90% *Zawya 80%   COMPANY DESCRIPTION 70% Established in 1975, Al Ain Ahlia Insurance Company (AAAIC) is the second largest of the Abu Dhabi-based ‘national’ insurance companies. It offers all classes of insurance and re-insurance services. AAAIC’s offering includes motor, engineering, property, marine, energy, aviation, life and health insurance. 60% Aug-08 Oct-08 Jan-09 ALAIN UH Equity Apr-09 Jul-09 ADII Index   SHAREHOLDER STRUCTURE Recent Events: • • In February 2009, AAAIC approved the distribution of a cash dividend of AED 10 per share for the year 2008  • In February 2008, Saudi Arabian insurer Tawuniya, AAAIC and Bahrain Kuwait Insurance Company launched Manasik, an insurance plan for the pilgrims of Haj and Umrah in Saudi Arabia  Abu Dhabi Investment Council 19.70% Mohamme d Bin Juan Rached Al Badie Al Thaheri 10.28% Khaled Mohamme d Bin Juan Rashed Al Badie Al Thaheri 5.45% Net premium income and net profit for the first quarter of 2009 were US$18.3 million and US$10.4 million, representing an increase of 10.3% and 19.7% respectively year on year Public 64.57% KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 70.2 76.7 94.6 Combined ratio 75.2 80.5 93.3 Investment return* 13.0 11.6 7.9 *Excluding change in fair value    
  30. 30.   Al Buhaira National Insurance Company (ABNIC UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 142.5 198.6 39.4 Net premium earned 48.9 65.8 34.6 Underwriting profit 20.9 27.5 31.6 Underwriting profit margin (%) 42.8 41.9 - Net profit 43.8 13.7 (68.8) ROE (%) 23.9 7.3 - ROA (%) 11.6 2.8 - S&P Financial Strength Credit Rating: BBB/Negative AED ABNIC UH ABNIC.ADSM 10.3 10.3/8.4 2,575.0 701.1 - Bloomberg Ticker: Exchange Ticker: Price (February 22, 2009) 52 Week High/Low Mkt. Cap (AED million)* (US$ million) * Enterprise value (AED million) (US$ million)   * Source: Zawya, July 13, 2009 130% 120% 110% *Zawya 100%   COMPANY DESCRIPTION 90% 80% Established in 1978, Al Buhaira National Insurance Company (ABNIC) is the fifth largest insurer in the UAE and a ‘national’ insurer of Sharjah. It underwrites all types of insurance risks, except savings and accumulation of funds. ABNIC provides property, engineering, energy, marine & aviation, medical, motor and travel insurance. 70% 60% Aug-08 Oct-08 Jan-09 ABNIC UH Equity Apr-09 Jul-09 ADII Index   SHAREHOLDER STRUCTURE Recent Events: • Net premium for the first half of 2009 of US$48.0 million increased by 31.0% year on year. ABNIC reported a net income of US$17.2 million in the first half of 2009 compared to US$21.8 million in the same period in 2008, a decrease of 21.0% year on year • In March 2008, ABNIC, in partnership with Uniqua Group, a group which owns 30 insurers in 20 European countries, established Takaful Al Emarat insurance. Takaful Al Emarat provides health and life insurance through the largest network based on Islamic Shariah in the Gulf region, the Middle East and other Islamic countries  HH Sheikh Tarek Bin Faisal Khaled Al Qasimi 9.59% Public 38.07% Al Qasimi Group 11.22% HH Sheikh Abdullah Bin Mohammed Bin Ali Al Thani 13.47% The Private Investment Group 27.65% KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 88.5 93.9 88.5 Combined ratio 49.6 57.2 58.1 7.3 8.6 -4.3 Investment return* *Excluding change in fair value    
  31. 31.   Al Khazna National Insurance Company (AKIC UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 2008 2007-‘08 (% change) Gross premium written 43.5 59.3 36.3 Net premium earned 21.1 26.5 25.5 Underwriting profit (1.7) (1.8) Underwriting profit margin (%) (7.9) (6.9) - Net profit 37.8 9.2 (75.8) ROE (%) 22.2 4.9 - ROA (%) 13.0 2.7 - AED AKIC UH AKIC.ADSM 0.93 2.61/0.73 372.0 101.3 493.6 134.4 Bloomberg Ticker: Exchange Ticker: Price (July 6, 2009) 52 Week High/Low Mkt. Cap (AED million) (US$ million) Enterprise value (AED million) (US$ million) 120% S&P Financial Strength Credit Rating: Not Rated *Zawya 100% 80% 60% 40%   COMPANY DESCRIPTION 20% Incorporated in 1996, Al Khazna Insurance Company (AKIC) is a ‘national’ insurer based in Abu Dhabi. It is authorized to write all classes of life and non-life insurance business. Its offerings include marine cargo & hull, energy & aviation, property, engineering, general accidents, motor and medical & life insurance. 0% Aug-08 Oct-08 Jan-09 AKIC UH Equity Apr-09 Jul-09 ADII Index   SHAREHOLDER STRUCTURE Recent Events: • • Net premium for the first quarter of 2009 of US$5.8 million decreased by 11.2% year on year. Also, AKIC reported a net loss of US$3.1 million in the first quarter of 2009 compared to net income of US$2.8 million in the same period in 2008 Ocha Hamad Eid 5.01% Public 89.99% In May 2008, AKIC acquired a 15% stake in Saudi Arabian Sanad for Co-operative Insurance and Reinsurance  Hazaa Mohammed Abdulaziz Rabih Chahine Al Mohairi 5.00% KEY INSURANCE RATIOS (%) 2006 Claims ratio Combined ratio Investment return* 2007 2008 85.9 77.4 72.9 103.6 94.9 91.8 15.1 18.1 7.4 *Excluding change in fair value    
  32. 32.   Al Sagr National Insurance Company (ASNIC UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 118.1 117.2 (0.8) Net premium earned 55.7 57.8 3.7 Underwriting profit 16.4 15.3 (6.8) Underwriting profit margin (%) 29.5 26.5 - Net profit 31.0 18.3 (41.0) ROE (%) 28.7 13.1 - ROA (%) 11.8 5.6 - S&P Financial Strength Credit Rating: BBBpi AED ASNIC UH ASNIC.DFM 4.56 4.56/2.61 1,048.8 285.5 - Bloomberg Ticker: Exchange Ticker: Price (April 21, 2009) 52 Week High/Low Mkt. Cap (AED million)* (US$ million) * Enterprise value (AED million) (US$ million)   * Source: Zawya, July 13, 2009 200% 160% *Zawya 120%   COMPANY DESCRIPTION 80% Established in 1979, Al Sagr National Insurance Company (ASNIC) offers all classes of life and non-life insurance, reinsurance products and services. Its main insurance offerings are fire and general accident, marine, motor, life and medical insurance. ASNIC operates in Saudi Arabia through its subsidiary, Al Sagr Company for Co-operative Insurance and has plans to establish a subsidiary in Qatar. 40% Jan-09 In March 2009, ASNIC issued 30 million bonus shares worth AED30 million (US$8.16 million) taking the total number of shares to 230 million • Abdullah Omran Taryam 9.47% In 2008 it bought 55% of an insurer based in Jordan and took over the management of Union Insurance Co PSC based in Ajman, UAE Gulf General Investment Company 53.00% In 2008, Al Sagr took a 26% share in a new Saudi insurer, Al Sagr Company for Co-Operative Insurance, and closed down its former Saudi operations previously conducted through a subsidiary in Bahrain • Apr-09 ASNIC UH Equity Net premium for the first quarter of 2009 of US$18.8 million increased by 28.7% year on year. ASNIC reported a net income of US$9.1 million in the first quarter of 2009 compared to US$12.2 million in the same period in 2008, a decrease of 25.5% year on year • Mar-09 May-09 Jun-09 Jul-09 BMEXSA Index   SHAREHOLDER STRUCTURE Recent Events: • Feb-09 Near East Enmaa Al Investment Emirate for Company General 8.75% Trading Ayman 7.50% Mohammed Yusri Al Dweik 5.00% Amjad Mohammed Yusri Al Dweik 5.00% Public 7.03% Khaled Khalfan Abdullah Mohammed Omran Al Roumi Taryam 2.00% 2.25% KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 66.5 84.1 82.0 Combined ratio 58.3 70.5 73.5 Investment return* -8.9 14.9 3.0 *Excluding change in fair value    
  33. 33.   Al Wathba National Insurance Company (AWNIC UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 2008 2007-‘08 (% change) Gross premium written 47.0 75.7 60.9 Net premium earned 20.2 34.9 73.1 Underwriting profit 2.2 2.4 6.7 Underwriting profit margin (%) 11.1 6.8 - Net profit 18.5 8.7 (53.2) ROE (%) 14.6 6.6 - ROA (%) 8.5 3.5 - S&P Financial Strength Credit Rating: Not Rated *Zawya AED AWNIC UH AWNIC.ADSM 7.69 10.4/6.3 922.8 251.2 - Bloomberg Ticker: Exchange Ticker: Price (March 10, 2009) 52 Week High/Low Mkt. Cap (AED million)* (US$ million) * Enterprise value (AED million) (US$ million)   * Source: Zawya, July 13, 2009 160% 140% 120%   COMPANY DESCRIPTION 100% 80% Established in 1997, Al Wathba National Insurance Company (AWNIC) offers general insurance and re-insurance services. Its offerings include fire & general accident, engineering, motor, marine, oil & energy, health and personal insurance. • • Aug-08 Oct-08 Jan-09 AWNIC UH Equity Apr-09 Jul-09 ADII Index   SHAREHOLDER STRUCTURE Recent Events: • 60% Net premium for the first half of 2009 of US$26.8 million increased by 50.1% year on year. However, AWNIC reported a net income of US$2.7 million in the first half of 2009 compared to US$10.6 million in the same period in 2008, a decrease of 74.8% year on year In January 2009, AWNIC acquired technology to enhance its internal communication network through Unified Communications, a Nortel and Microsoft’s product. Unified Communications converges voice and data services with telephony, fax, email, video and instant messaging to strengthen communication between employees and its outside contacts In April 2008, AWNIC, in association with Vision Investment Company, launched Vision Insurance in Oman. With a capital base of RO 5 million, Vision Insurance provides all lines of non-life, group life and group medical insurance   Public 27.80% Saif Darweesh Ahmad Al Ketbi 19.15% Abu Dhabi National Company for Building Materials 3.40% HH Sheikh Saif Bin Mohammed Bin Butti Al Hamed 13.20% Ahmad Bin Ali Khalfan Al Dhaheri 5.25% Mohammed Ahmad Al Kassemi 5.60% Abu Dhabi Cooperative Society 9.27% Rashed Darweesh Ahmad Al Ketbi 9.27% Ali Rashed Nasser Al Omeira 7.06% KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 64.8 70.2 77.3 Combined ratio 80.4 88.9 93.2 5.2 8.5 3.1 Investment return* *Excluding change in fair value    
  34. 34.   Arab Orient Insurance Company (AOIC UH Equity) PERFORMANCE SUMMARY* STOCK DATA (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 208.7 272.3 30.5 Net premium earned 52.9 67.9 28.5 Underwriting profit 24.7 36.9 49.5 Underwriting profit margin (%) 34.5 49.5 - Net profit 37.1 40.9 10.3 Net profit margin (%) 43.2 10.3 - ROE (%) 31.1 27.5 - ROA (%) 11.0 9.7 AED AOIC UH AOIC.DFM - Bloomberg Ticker: Exchange Ticker: Price (na) 52 Week High/Low Mkt. Cap (AED million) (US$ million) Enterprise value (AED million) (US$ million) - S&P Financial Strength Credit Rating : A/Stable * Zawya COMPANY DESCRIPTION   Established in 1980, Arab Orient Insurance Company operates into two main insurance segments, namely personal insurance and commercial insurance. The personal insurance segment offers motor, comprehensive household, personal accident, medical, individual life and travel insurance. Its commercial insurance segment offers property, engineering, liability, money, fidelity guarantee, contingency, marine, workmen's compensation, group life, group medical, motor fleet, and bond insurances.   SHAREHOLDER STRUCTURE Al Futtaim Private Company 5.00% Recent Events • Gross premium and net profit for the first half of 2009 were US$150.0 million and US$28.8 million, an increase of 10.0% and 30.0% respectively year on year • Al Futtaim Group 5.00% Arab Orient Insurance Company, Abu Dhabi Islamic Bank and Union National Bank recently established a Takaful insurance company in Egypt • Al Futtaim Development Services Company 90.00% In April 2007, the company commenced operations in Syria   KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 49.0 50.5 44.8 Combined ratio 54.4 53.3 45.7 6.7 7.1 0.2 Investment return* *Excluding change in fair value    
  35. 35.   Dubai Insurance Company (DIN UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 16.7 33.0 98.0 Net premium earned 6.0 15.3 161.6 Underwriting profit 2.0 4.4 115.7 Underwriting profit margin (%) 34.1 28.1 - Net profit 12.0 18.3 52.4 ROE (%) 11.9 17.7 - ROA (%) 10.3 14.3 - S&P Financial Strength Credit Rating: Not Rated AED DIN UH DIN.DFM 28.9 289.0 78.7 - Bloomberg Ticker: Exchange Ticker: Price (June 10, 2009) 52 Week High/Low Mkt. Cap (AED million)* (US$ million) * Enterprise value (AED million) (US$ million)   * Source: Zawya, July 13, 2009 120% 110% 100% *Zawya 90%   COMPANY DESCRIPTION 80% Dubai Insurance Company (DIC) offers all classes of general life and non-life insurance products. DIC mainly offers short term insurance contracts for fire and engineering, motor, marine, general accident, medical and group life risks. • • • 60% Aug-08 Oct-08 Jan-09 DIN UH Equity Apr-09 Jul-09 DFIINSU Index   SHAREHOLDER STRUCTURE Recent Events: • 70% In July 2009, DIC and the UK based insurance specialist William Russell Limited introduced global life insurance plans for GCC residents, offering cover of up to 20 times the salary up to a maximum of US$1.5 million Abdulwah eed Hassan Mohamme d Al Rostamani 16.77% Public 43.61% Net premium and net profit for the first quarter of 2009 were US$8.1 million and US$3.7 million, an increase of 43.5% and 26.9% respectively year on year In March 2009, DIC distributed AED 3 per share cash dividend for the year ended December 31, 2008  Others 20.27% In March 2008, DIC distributed bonus shares of 33.3% of the paid up capital  Mashreq 4.16% Mohamme d Obeid Al Mulla and Sons Abdullah 8.00% Hamad Majed Al Futtaim 7.19% KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 34.4 49.1 45.3 Combined ratio 21.9 65.9 71.9 -10.3 7.9 17.8 Investment return* *Excluding change in fair value    
  36. 36.   Emirates Insurance Company (EIC UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 Gross premium written 2008 2007-‘08 (% change) 133.2 180.5 35.5 Net premium earned 31.7 51.8 63.7 Underwriting profit 12.6 13.8 9.5 Underwriting profit margin (%) 39.7 26.6 - Net profit 37.0 30.9 (16.5) ROE (%) 10.8 10.2 - ROA (%) 7.5 6.1 - AED EIC UH EIC.ADSM 6.49 8.83/6.0 778.8 212.1 712.0 193.9 Bloomberg Ticker: Exchange Ticker: Price (June 25, 2009) 52 Week High/Low Mkt. Cap (AED million) (US$ million) Enterprise value (AED million) (US$ million)   120% 110% 100% S&P Financial Strength Credit Rating: BBB+/Stable *Zawya 90%   COMPANY DESCRIPTION 80% 70% Incorporated in 1983, Emirates Insurance Company (EIC) is the third largest of the Abu Dhabi based ‘national’ insurers and the sixth largest in the UAE. EIC offers  a  comprehensive range of insurance products to both corporate and individual customers. EIC offers the following classes of insurance services: aviation, bankers’ blanket bond insurance, cargo, fidelity guarantee, fire, marine, money, motor and life insurance. 60% Aug-08 Oct-08 Jan-09 EIC UH Equity •   SHAREHOLDER STRUCTURE Abu Dhabi Cooperative Society 15.35% Net premium for the first half of 2009 of US$31.9 million increased by 33.4% year on year. EIC reported a net income of US$11.5 million in the first half of 2009 compared to US$25.9 million in the same period in 2008, a decrease of 55.5% year on year In July 2008, EIC was the first Abu Dhabi insurance company to be awarded a fully interactive insurance company financial strength rating of BBB+ from Standard & Poor’s Jul-09 ADII Index Recent Events: • Apr-09 Al Mazroui Group 13.95% Public* 58.89% Abu Dhabi Investment Council 11.81% * Al Qasimi Group shareholding is part of the public stake  Gross Premium Income (in US$ million) 48.5 47.1 KEY INSURANCE RATIOS (%) 43.6 30.0 32.7 33.8 15.0 Marine 2007 2008 Claims ratio 80.5 63.6 67.8 72.3 60.3 73.4 5.1 6.3 7.8 26.7 14.2 Life and Medical 2006 Combined ratio 22.3 Engineering 2007 Fire and General Accident Motor Investment return* *Excluding change in fair value 2008    
  37. 37.   Oman Insurance Company (OIC UH Equity)   STOCK DATA PERFORMANCE SUMMARY* (US$ million) 2007 2008 2007-‘08 (% change) Gross premium written 412.2 581.4 41.0 Net premium earned 192.3 271.3 41.0 Underwriting profit 47.9 59.9 25.2 Underwriting profit margin (%) 24.9 22.1 - Net profit 171.8 68.1 (60.3) ROE (%) 33.3 12.4 - ROA (%) 15.8 5.2 AED OIC UH OIC.DFM 11.0 11.0/10.0 4,198.8 1,143.2 4,378.4 1,192.1 Bloomberg Ticker: Exchange Ticker: Price (June 30, 2009) 52 Week High/Low Mkt. Cap (AED million) (US$ million) Enterprise value (AED million) (US$ million) - 120% 110% S&P Financial Strength Credit Rating: BBB+/Stable 100% *Zawya 90%   COMPANY DESCRIPTION 80% Established in 1975, Oman Insurance Company (OIC) is the largest insurer in the UAE, with its base in Dubai. It mainly issues short term insurance contracts for property, marine and motor risks and medical, group life and personal accident risks. OIC also invests its funds in investment securities and properties through its wholly-owned subsidiary, Equator Trading Enterprises LLC. 60% 70% Aug-08 Oct-08 Jan-09 OIC UH Equity Apr-09 Jul-09 DFIINSU Index   SHAREHOLDER STRUCTURE Recent Events: • Net premium for the first half of 2009 of US$175.1 million increased by 26.6% year on year. OIC reported a net income of US$38.8 million in the first half of 2009 compared to US$97.6 million in the same period in 2008, a decrease of 60.3% year on year • Mashreq 63.65% Saeed Mohammed Saeed Al Ghandi 4.50% Ahmad Humaid Al Tayer 1.00% In Q1 2009, OIC commenced operations in Qatar • Al Dhaheri Group 5.00% In March 2009, OIC distributed AED 0.5 per share cash dividend for the year ended December 31, 2008   Public 25.85% KEY INSURANCE RATIOS (%) 2006 2007 2008 Claims ratio 50.4 52.5 54.4 Combined ratio 70.4 75.1 77.9 5.1 14.9 3.1 Investment return* *Excluding change in fair value    
  38. 38.   For more information: Name: Tommy Trask Designation: Executive Director Contact détails: t.trask@alpencapital.com Tel: +971 (0) 4 363 4322 Name: Sanjay Vig Designation: Managing Director Contact détails: s.vig@alpencapital.com Tel: +971 (0) 4 363 4307                        
  39. 39.   This page has intentionally been left blank    
  40. 40.      

×